Herbalife stock is up over 5% after hours after WSJ reportsBill Ackman (among others) made false statement about Herbalife's business models to regulators - in order to spur investigations into the company and lower its stock price. This comes just months after Ackman kinda-sorta-didn't-really insider-trade in the Allergan 'scam' that we detailed here. We suspect Whitney Tilson (and his Lumber Liquidators positions) is getting a little nervous now.

Federal prosecutors and the Federal Bureau of Investigation are probing potential manipulation of Herbalife Ltd. stock and have interviewed people hired by hedge-fund billionaire William Ackman, who has led a long-running campaign against the nutritional-products company, people familiar with the matter said.

Prosecutors in the Manhattan U.S. attorney’s office and New York field office of the FBI have conducted interviews and sent document requests in recent months in connection with the investigation, which is looking into whether people, including some hired by Mr. Ackman, made false statements about Herbalife’s business model to regulators and others in order to spur investigations into the company and lower its stock price, the people said. Mr. Ackman’s firm, Pershing Square Capital Management LP, has made a huge bet on Herbalife shares declining.

One of the people familiar with the matter said investigators are scrutinizing public statements and allegations relayed to regulators by the array of consultants and activists who have lobbied against Herbalife as well as any connections or potential collaboration between those people and Pershing Square.

Neither Mr. Ackman nor Pershing Square has been served with a subpoena or been visited by FBI agents in connection with the probe, another person familiar with the matter said. The investigation could end with no charges being filed.

Market manipulation can be a fraught area of the law, legal experts say. Attempting to discredit a company, even through false statements, isn’t illegal, nor is paying others to make such statements on your behalf. Market manipulation cases rise and fall on the “intentionality and deliberateness” of making false statements to affect a stock price, said Columbia Law School Prof. Daniel Richman.

In a statement, a Pershing Square spokesman said the firm was proud of “exposing the pervasive victimization by Herbalife of millions of people and would welcome any scrutiny of those efforts.”

“We have been completely transparent about our position and our research, and we have acted lawfully in every respect,” he said.

Herbalife Executive Vice President Alan Hoffman said in a statement that Mr. Ackman and Pershing Square had spent tens of millions “orchestrating a false and fabricated attack against Herbalife.”

But Herbalife may be just the tip of Ackman's regulatory worries iceberg, because while Herbalife is 2013 news, it was his "legal" collusion with Valeant (or rather its balance sheet as leverage) against Allergan that deserve much more attention. This is what we previously noted regarding Allergan scam...

if the SEC is indeed serious about getting to the bottom of the Allergan insider-trading scam, is it also looking into just how these hedge funds decided to buy into Allergan in a quarter in which the stock soared on the Valeant/Ackman news?

Because while it is perfectly legal if these funds did their homework and rather "mysteriously" all decided to buy into the stock at the same time, or put on M&A arbs after the hostile bid announcement, one wonders just how legal it would be if one or more of these investors only bought AGN stock after getting a "sure thing" tip from Ackman that he was about to go activist on Allergan with Valeant money, something which is certainly illegal.

All that said, we aren't holding our breath on the SEC actually doing its job for once, and certainly not before Pershing Square goes public. After all can't hinder "capital formation" in these here unrigged markets.

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Presenting exhibit A: this is the list of hedge funds and prop trading desks that according to Bloomberg (and CapIQ) announced brand new and quite material stakes, in Allergan, after building up a position some time in the second quarter, having no holdings as of the first quarter.

Who knows: perhaps the FBI actually has the guts to do what the clearly corrupt SEC will dare: catch real crime.

Somewhere Carl Icahn - who has "kissed and made up" with Ackman - is having a close-to-last laugh we suspect.